What it is: A Distributed Ledger (DL) is a record of transactions shared among multiple sources without a central controlling authority. Although it is synonymous with blockchain and cryptocurrencies like Bitcoin, more DL protocols may emerge, and DLs can record things other than currency exchange. As yet, there are only a few business applications in use beyond the exchange of cryptocurrency, but potential applications may be significant across domains from healthcare to hospitality.
What it does: A DL creates a definitive, permanent record of transactions among multiple parties. Its integrity is maintained because it’s housed with multiple users, and new transactions are only allowed when every party consents to their validation. Any data that can be represented by a digital token can be exchanged or shared in this way.
Why it matters: Traditional accounting (and by extension, transactional data management) practices have some inherent weaknesses. Individual ledgers are owned by authorities which may tamper with them. Additionally, ledgers aren’t necessarily standardized among actors, leading to obscurity and disputes even among honest parties. Distributed ledger technology bypasses these issues and minimizes the potential for error, a development that could be revolutionary in finance, supply chain management, and other sectors.
What to do about it: DL technology hasn’t yet achieved widespread adoption, except among businesses transacting in cryptocurrency: this could change in the very near future, as more B2B DL services enter the market… Some businesses may have an internal use for a DL (e.g. managing internal assets or its own suppliers), or they may need a shared DL platform to work with others. In either case, DL offers a tamper-proof, highly distributed transaction/data exchange.
The underlying technology is fairly established, at least in the form of blockchain, which is a fully demonstrated protocol. However, as a business tool, it’s still largely in the development phase, although promising pilot programs are emerging. Banks such as J.P. Morgan are investing in distributed ledger systems, hoping to develop systems that could lead to tamper-proof, low-cost international transactions. Beyond the financial sector, Walmart is working with IBM to develop distributed ledger technology to bring transparency to supply chains, for financial and ethical reasons.
- Allows the creation of tamper-proof records that make regulatory compliance easier, both by ensuring that regulations are being faultlessly followed, and by generating certified records of every relevant transaction.
- Creates the potential to build proprietary platforms that ensure transparency in areas like supply chain management.
- If applied to financial transactions, it reduces or eliminates costs related to disputed transactions.
- By providing self-generated transaction assurance, potentially removes the need for third-party verification tools, reducing costs and increasing transaction speeds.
- Is by its nature massively distributed and therefore suitable for applications that would not work well with a centralized transaction/data store.
- Financial transactions
- Real estate transactions
- Intellectual property management
- Corruption-proof non-profit investing
- Regulatory compliance
- Supply chain management
- Trading platform creation
- Healthcare records
HNA Group, a Fortune 500 conglomerate formerly known as Hainan Airlines, has successfully implemented the technology in a novel fashion. The company used blockchain to develop an internal marketplace for flexible employee benefits. This is a demonstration of how platforms created with DL technology could allow transparent exchange over large conglomerations.